Item 1A.
Risk Factors
An investment in the Company ’s common stock involves risks. Stockholders should carefully consider the risks described below, together with other information contained in this Annual Report on Form 10-K and other documents filed with the SEC, including the Company’s registration statement on Form S-4, before making any purchase or sale decisions regarding the Company ’s common stock. If any of the following risks actually occur, the Company ’s financial condition or operating results may be harmed. In that case, the trading price of the Company ’s common stock may decline and stockholders may lose part or all of their investment in the Company ’s common stock.
Risk Factors Summary
The Company’s material risk factors that could adversely affect the business, financial condition, and results of operations are categorized as follows:
• Risks Related to the Pending Merger with Flushing and Investment from Warburg
• Risks Related to Lending Activities
• Risks Related to Economic Matters
• Risks Related to Interest Rates
• Risks Related to Acquisitions and Growth
• Risks Related to Loan Sales
• Risks Related to Laws and Regulations
• Risks Related to Dividend Payments
• Risks Related to Competition
• Risks Related to Strategic Matters
• Risks Related to Operational Matters
• Risks Related to Accounting and Internal Controls Matters
• Risks Related to Environmental and Other Global Matters
• Risks Related to Card Networks
• Other Risks Related to the Business
Risks Related to the Pending Merger with Flushing and Investment from Warburg
The market price of the Company’s common stock after the Mergers may be affected by factors different from those currently affecting the shares of the Company’s common stock. As a result of the First Merger, certain adjustments may be made to the combined company’s business as a result of the Mergers. Accordingly, the results of operations of the combined company and the market price of the Company’s common stock after the completion of the Mergers may be affected by factors different from those currently affecting the independent results of operations of each of the Company and Flushing.
Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Mergers. Before the Mergers and the Bank Merger may be completed, the requisite approvals, consents and non-objections must be obtained from the FRB, OCC and NYDFS. Under the Investment Agreement, before the Investment by Warburg may be completed, Warburg must have received reasonably satisfactory oral confirmation from staff of the legal division of the FRB that the consummation of the transactions contemplated by the Investment Agreement will not result in Warburg being deemed to have, or have acquired, “control” of the Company or any of its subsidiaries for purposes of the BHC Act or CIBC Act and the implementing regulations thereunder, either (a) individually or (b) as part of an “association” or group “acting in concert” with any other person with respect to the transactions contemplated by the Investment Agreement contemplated to occur at the Investment closing, as those terms are defined and interpreted by the FRB under Regulation Y (12 C.F.R. Part 225). Other approvals, waivers or consents from regulators may also be required, both for the Mergers and for the Investment.
In determining whether to grant these approvals and confirmations, such regulatory authorities consider a variety of factors. These approvals or confirmations could be delayed or not obtained at all, including due to (a) a party’s regulatory standing (or adverse development in respect thereof), (b) any other factors considered by regulators when granting such approvals or confirmations, including governmental, political or community group inquiries, investigations or opposition, or (c) changes in legislation or the political environment generally.
The approvals that are granted may impose terms and conditions, limitations, obligations or costs, or place restrictions on the conduct of the combined company’s business or require changes to the terms of the transactions contemplated by the Merger Agreement or the Investment Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying or jeopardizing the completion of any of the transactions contemplated by the Merger Agreement or the Investment Agreement, imposing additional material costs on or materially limiting the revenues of the combined company following the Mergers or otherwise reducing the anticipated benefits of the Mergers (including the Investment and its inclusion as common equity tier 1 capital, assuming the Mergers and the Investment are consummated successfully and within the expected timeframe). In addition, there can be no assurance that any such conditions, limitations, obligations or restrictions will not result in abandonment of the Mergers and the Investment. Additionally, the completion of the Mergers and the Investment is conditioned on the absence of certain orders, injunctions or decrees by any governmental entity of competent jurisdiction that would prevent, prohibit or make illegal the completion of any of the transactions contemplated by the Merger Agreement or the Investment Agreement, as applicable.
The Company and Flushing have agreed in the Merger Agreement to use commercially reasonable efforts to (a) promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and governmental entities which are necessary or advisable to consummate the transactions contemplated by the Merger Agreement, and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such governmental entities and (b) respond to any request for information and to resolve any objection that may be asserted by any governmental entity with respect to the Merger Agreement or the transactions contemplated thereby in each case in a reasonably prompt and timely matter, including the sale, divestiture or disposition of assets, properties or businesses of the Company, Flushing or their respective subsidiaries. However, under the terms of the Merger Agreement, neither the Company nor Flushing, nor any of their respective subsidiaries, is required or permitted (without the written consent of the other party), to take any action, or agree to any condition or restriction, in connection with obtaining the requisite regulatory approvals that would reasonably be expected to have, individually or in the aggregate, a material adverse effect (measured on a scale relative to the Company and its subsidiaries, taken as a whole) on the combined company and its subsidiaries, taken as a whole, after giving effect to the Mergers.
The Company and Warburg have agreed in the Investment Agreement to use reasonable best efforts to promptly prepare and file for all permits, consents, approvals, confirmations and authorizations of all third parties and governmental entities that are necessary or advisable to consummate the investment as promptly as reasonably practicable, and to respond to any request for information from any government authority related to the foregoing, so as to enable the parties to consummate the transactions contemplated by the Investment Agreement. However, under the terms of the Investment Agreement, neither the Company nor any of its subsidiaries is permitted (without the written consent of the other party), and none of Warburg or any of their affiliates is required, to take any action, or commitment to take or refrain from taking any action, or acceptance or agreement to any condition or restriction, in each case, that would reasonably be expected to cause Warburg, its affiliates or any of their partners or principals to (a) “control” the Company or be required to become a bank holding company, in each case, pursuant to the BHC Act; (b) “control” the Company or be required to provide prior notice pursuant to the CIBC Act; (c) serve as a source of financial strength to the Company pursuant to the BHC Act; or (d) enter into any capital or liquidity maintenance agreement or any similar agreement with any governmental entity, provide capital support to the Company, Flushing or any of their respective subsidiaries or otherwise commit to or contribute any additional capital to, provide other funds to, or make any other investment in, the Company, Flushing or any of their respective subsidiaries.
Consummation of the Mergers is conditioned upon the prior or concurrent closing of the Investment. As a condition to the consummation of the Mergers, the Company must prior to or concurrently therewith consummate the purchase and sale of the Company’s common stock and the Company’s NVCE Stock by Warburg pursuant to the Investment Agreement. Although the Company has a legally binding agreement with Warburg pursuant to which Warburg has agreed to invest $225 million in the Company’s qualifying equity securities substantially concurrently with the Merger closing, the obligation of Warburg to make such Investment is subject to various conditions. Failure to consummate (or a delay in consummating) the Investment may cause the failure or delay in the ability of the parties to consummate the Mergers.
Failure to consummate the Mergers and Investment could negatively impact the Company. The consummation of the Mergers is subject to the receipt of requisite regulatory and requisite stockholder approvals and the satisfaction of other customary closing conditions, including the substantially concurrent consummation of the Investment. If the Mergers are not completed for any reason, including as a result of the Company’s stockholders or Flushing’s stockholders failing to grant the applicable requisite stockholder approval at the applicable company’s special stockholders meeting or the imposition of a materially burdensome regulatory condition resulting in either the Company or Flushing refusing to consummate the Mergers, there may be various adverse consequences and the Company may experience negative reactions from the financial markets and from their customers and employees. For example, the Company’s business may each be impacted adversely by the failure to pursue other beneficial
opportunities due to the focus of management on the Mergers, without realizing any of the anticipated benefits of consummating the Mergers.
Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could decline to the extent that current market prices reflect a market assumption that the Mergers and/or the Investment will be beneficial and will be consummated. The Company or Flushing also could be subject to litigation related to any failure to complete the Mergers or, in the case of the Company, the Investment or to proceedings commenced against the Company or Flushing to perform its obligations under the Merger Agreement or, in the case of the Company, the Investment Agreement. If the Merger Agreement is terminated under certain circumstances, either party may be required to pay a termination fee equal to $21.4 million to the other party. If the Company receives a termination fee from Flushing, it may be required to remit a portion of that fee to Warburg. The Merger Agreement also provides that the Company will be required to pay Flushing a termination fee equal to $46.3 million under certain circumstances where the Merger Agreement is terminated due to the Investment not being consummated.
Additionally, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement and the Investment Agreement, as well as the costs and expenses of preparing, filing, printing and mailing of a joint proxy statement/prospectus in connection with the Mergers, and all filing and other fees paid in connection with the Mergers. If the Mergers and/or the Investment are not completed, the Company and Flushing would have to pay these expenses without realizing the expected benefits of the Mergers and/or the Investment, as applicable. Although the Company or Flushing may be entitled to receive a termination fee from the other party if the Merger Agreement is terminated under certain circumstances, (a) such payments may not be sufficient to fully compensate the Company for the losses it may incur in connection with a failure of the Mergers to be consummated and (b) the Company may be required to remit a portion of the termination fee it receives to Warburg.
Combining the Company and Flushing may be more difficult, costly or time-consuming than expected, and the combined company may fail to realize the anticipated benefits of the Mergers. The success of the Mergers will depend, in part, on the anticipated cost savings from combining the businesses of the Company and Flushing. To realize certain anticipated benefits and cost savings from the Mergers, the Company and Flushing must successfully integrate and combine their businesses in a manner that permits those benefits and cost savings to be realized without adversely affecting current revenues and future growth. If the Company and Flushing are not able to successfully achieve these objectives, such anticipated benefits and cost savings of the Mergers may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the Mergers could be less than anticipated, and integration may result in additional and unforeseen expenses.
An inability to realize the full extent of the anticipated benefits of the Mergers and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the capital position, revenues, levels of expenses and operating results of the combined company following the completion of the Mergers, which may adversely affect the value of the common stock of the combined company following the completion of the Mergers.
The Company and Flushing have operated and, until the completion of the Mergers, must continue to operate independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ ability to maintain relationships with their stakeholders or to achieve the anticipated benefits and cost savings of the Mergers. Integration efforts between the companies may also divert management attention and resources. These integration matters could have an adverse effect on the Company during this pre-closing period and for an undetermined period after consummation of the Mergers on the combined company.
Furthermore, the board of directors and executive leadership of the combined company and the surviving bank will consist of former directors and executive officers from each of the Company and Flushing, as well as the Warburg director. Combining the boards of directors and management teams of each company into a single board of directors and a single management team could require the reconciliation of differing priorities and philosophies.
The combined company may be unable to retain the Company’s and/or Flushing’s personnel successfully after the Mergers are completed. The success of the Mergers will depend, in part, on the combined company’s ability to retain the talent and dedication of key employees currently employed by the Company and Flushing. It is possible that these employees may decide not to remain with the Company or Flushing, as applicable, while the Mergers are pending or with the combined company after the Mergers are consummated. If the Company and Flushing are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, the Company could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment costs. In addition, following the Mergers, if key employees terminate their employment, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully hiring suitable
replacements, all of which may cause the combined company’s business to suffer. The Company and Flushing also may not be able to locate or retain suitable replacements for any key employees who leave either company.
The Company and Flushing will be subject to business uncertainties and contractual restrictions while the Mergers are pending. Uncertainty about the effect of the Mergers on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s or Flushing’s ability to retain and motivate key personnel until the Mergers are completed and could cause customers and others that deal with the Company or Flushing to seek to change existing business relationships with the Company or Flushing. In addition, subject to certain exceptions, each of the Company and Flushing has agreed to operate its business in the ordinary course in all material respects and to refrain from taking certain actions that may adversely affect its ability to (a) consummate the transactions contemplated by the Merger Agreement on a timely basis without the consent of the other party and (b) in the case of the Company, obtain any necessary approvals of any governmental entity in connection with the Investment without the consent of Warburg. These restrictions may prevent the Company or Flushing from pursuing attractive business opportunities that may arise prior to the completion of the Mergers.
The Company and Flushing have incurred, and the combined company is expected to incur substantial costs related to the Mergers and integration. The Company and Flushing have incurred and expect to incur a number of non-recurring costs associated with the Mergers and the Investment. These costs include legal, financial, accounting, consulting and other advisory fees, retention, severance and employee benefit-related costs, public company filing fees and other regulatory fees, financial printing and other printing costs, closing, integration and other related costs. Some of these costs are payable by the Company and/or Flushing regardless of whether the Mergers are completed.
In addition, the combined company will incur integration costs following the completion of the Mergers as the Company and Flushing integrate their businesses, including facilities and systems consolidation costs and employment-related costs. The Company and Flushing may also incur additional costs to maintain employee morale and to retain key employees. There are many processes, policies, procedures, operations, technologies and systems that may need to be integrated, including purchasing, accounting and finance, payroll, compliance, treasury management, branch operations, vendor management, risk management, lines of business, pricing and benefits. While the Company and Flushing have assumed that a certain level of costs will be incurred, there are many factors beyond their control that could affect the total amount or the timing of the integration costs. Moreover, many of the costs that will be incurred are, by their nature, difficult to estimate accurately. These integration costs may result in the combined company taking charges against earnings following the completion of the Mergers, and the amount and timing of such charges are uncertain at present. There can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs over time.
Stockholder litigation related to the Mergers and/or the Investment could prevent or delay the completion of the Mergers and/or the Investment, result in the payment of damages or otherwise negatively impact the business and operations of the Company or Flushing. Stockholders may bring claims in connection with the Mergers and/or the Investment and, among other remedies, may seek damages or an injunction preventing the Mergers and/or the Investment from closing. If any plaintiff were successful in obtaining an injunction prohibiting the Company or Flushing from completing the Mergers or any other transactions contemplated by the Merger Agreement or the Company and Warburg from consummating the Investment (or any portion thereof), then such injunction may delay or prevent the effectiveness of the Mergers and the Investment and could result in costs to the Company or Flushing, including costs in connection with the defense or settlement of any stockholder lawsuits filed in connection with the Mergers and/or the Investment. Further, such lawsuits and the defense or settlement of any such lawsuits may have an adverse effect on the financial condition and results of operations of the Company, Flushing or the combined company.
The Merger Agreement may be terminated in accordance with its terms, and the Mergers may not be consummated. The obligation of the Merger Agreement parties to consummate the first Merger is subject to a number of conditions that must be satisfied or waived in order to consummate the Mergers. Those conditions include, among other things: (a) receiving the requisite Company and Flushing stockholder approvals of certain matters relating to the Mergers at each company’s respective special stockholders meeting; (b) the authorization for listing on the Nasdaq Global Select Market, subject to official notice of issuance, of the shares of the Company’s common stock to be issued pursuant to the Merger Agreement, (c) the receipt of the requisite regulatory approvals and that no requisite regulatory approval contains any materially burdensome regulatory condition; (d) the absence of any order, injunction, decree or other legal restraint preventing the consummation of the Mergers, the Bank Merger or any of the other transactions contemplated by the Merger Agreement or making the completion of the Merger, the Bank Merger or any of the other transactions contemplated by the Merger Agreement illegal; (e) the registration statement filed by the Company relating to the Company’s common stock to be issued in the First Merger being declared effective by the SEC under the Securities Act and not withdrawn; and (f) the consummation of the investment concurrently with the closing of the Mergers. Each party’s obligation to consummate the Mergers is also subject to certain additional conditions, including: (i) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party
(including the absence of any material adverse effect, as defined in the Merger Agreement); (ii) the performance in all material respects by the other party of its obligations under the Merger Agreement; and (iii) the receipt by each party of an opinion from its counsel to the effect that the Mergers will qualify as a reorganization within the meaning of Section 368(a) of the Code.
These conditions to the consummation of the first Merger may not be satisfied or waived in a timely manner or at all, and, accordingly, the Mergers may not be consummated. In addition, the parties can mutually decide to terminate the Merger Agreement at any time, before or after the requisite stockholder approvals, or Flushing or the Company may elect to terminate the Merger Agreement in certain other circumstances.
The Investment Agreement may be terminated in accordance with its respective terms and the Investment may not be consummated. The obligation of the parties to the Investment Agreement to consummate the Investment is subject to a number of conditions which must be satisfied or waived in order to consummate the Investment. Those conditions include, among other things: (a) all of the conditions to the Merger closing will have been satisfied or waived, other than the investment condition and those conditions that by their nature can only be satisfied or waived at the Merger closing (but subject to such conditions then being satisfied or waived), (b) the first Merger will have been consummated, or will be consummated substantially concurrently with the Investment closing, in accordance with the terms and conditions of the Merger Agreement; (c) Warburg must have received reasonably satisfactory oral confirmation from staff of the legal division of the FRB that the consummation of the Investment will not result in Warburg being deemed to have, or to have acquired, “control” of the Company or any of its subsidiaries for purposes of the BHC Act or CIBC Act; and (d) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Investment or making the completion of the Investment or any of the other transactions contemplated by the Investment Agreement illegal. Each party’s obligation to consummate the Investment is also subject to certain additional customary conditions, including (i) subject to applicable materiality standards, the accuracy of the representations and warranties of the other party, and (ii) the performance in all material respects by the other party of its obligations under the Investment Agreement.
These conditions to the consummation of the Investment may not be satisfied or waived in a timely manner or at all, and, accordingly, the Investment may not be consummated. In addition, the parties to the Investment Agreement can mutually decide to terminate the Investment Agreement at any time, before or after the requisite stockholder approvals, or the parties may elect to terminate the Investment Agreement in certain other circumstances.
The announcement of the Mergers could disrupt the Company’s and Flushing’s relationships with their employees, customers, suppliers, business partners and others, as well as their operating results and business generally. Whether or not the Mergers are ultimately consummated, as a result of uncertainty related to the proposed transactions, risks relating to the impact of the announcement of the Mergers on the Company’s and Flushing’s business include the following:
• their employees may experience uncertainty about their future roles, which might adversely affect the Company’s and Flushing’s ability to retain and hire key personnel and other employees;
• customers, suppliers, business partners and other parties with which the Company and Flushing maintain business relationships may experience uncertainty about their future and seek alternative relationships with third parties, seek to alter their business relationships with the Company and Flushing or fail to extend existing relationships with the Company and Flushing; and
• The Company and Flushing have each expended and will continue to expend significant costs, fees and expenses for professional services and transaction costs in connection with the Mergers.
If any of the aforementioned risks were to materialize, they could lead to significant costs which may impact each party’s results of operations and financial condition.
The Merger Agreement limits the Company’s abilities to pursue alternatives to the Mergers and may discourage other companies from trying to acquire Company. The Merger Agreement contains “no shop” covenants that restrict the Company’s ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by each respective board of directors, engage or participate in any negotiations concerning, or provide any confidential or nonpublic information or data relating to, any alternative acquisition proposals, subject to certain exceptions. These provisions, which could result in a $21.4 million termination fee payable under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company or Flushing from considering or making that acquisition proposal.
Issuance of shares of the Company’s common stock in connection with the Mergers and the Investment may adversely affect the market price of the Company’s common stock. In connection with the payment of the Merger consideration, based on the number of shares of Flushing common stock outstanding or reserved for issuance, the Company expects to issue approximately
11.4 million shares of the Company’s common stock and NVCE Stock to the holders of Flushing restricted stock unit awards in the aggregate in the first Merger. In addition, in connection with the Investment, the Company expects to issue approximately 9.5 million shares of the Company’s common stock to Warburg. The issuance of these new shares of the Company’s common stock may result in fluctuations in the market price of the Company’s common stock, including a stock price decrease.
Risks Related to Lending Activities
The Company’s emphasis on commercial lending may expose the Company to increased lending risks . At December 31, 2025, $7.63 billion, or 69.2%, of the Company’s total loans consisted of commercial real estate, multi-family real estate, construction and land loans, and commercial and industrial loans. These portfolios have grown in recent years and the Company intends to continue to emphasize these types of lending. These types of loans may expose a lender to greater risk of non-payment and loss than residential real estate loans because repayment of the loans often depends o n the successful operation of the property or the borrower’s business and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate loans. These loans expose the Company to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate. If the Company forecloses on these loans, the holding period for the collateral typically is longer than for a single or multifamily residential property because there are fewer potential purchasers of the collateral. Commercial and industrial loans are typically affected by the borrowers’ ability to repay the loans from the cash flows of their businesses. These loans may involve greater risk because the availability of funds to repay each loan depends substantially on the success of the business itself. The collateral securing the loans and leases often depreciates over time, is difficult to appraise and liquidate and fluctuates in value based on the success of the business.
The level of commercial real estate loans may subject the Company to additional regulatory scrutiny. The OCC and the other federal bank regulatory agencies have promulgated guidance on sound risk management practices for financial institutions with concentrations in commercial real estate loans. Under the guidance, a financial institution that, like the Bank, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may be subject to this guidance if, among other factors, (i) total reported loans for construction, land acquisition and development and other land represent 100% or more of total capital and the outstanding balance of a financial institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months, or (ii) total reported loans secured by multi-family and non-farm residential properties, loans for construction, land acquisition and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. Based on these factors, the Bank has a concentration in multi-family and commercial real estate lending, as such loans represented 433% of total bank capital as of December 31, 2025. The guidance focuses on exposure to commercial real estate loans that are dependent on the cash flows from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or in an abundance of caution). The guidance assists banks in developing risk management practices and determining capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. While it is management’s belief that policies and procedures with respect to the Bank’s commercial real estate loan portfolio have been implemented consistent with this guidance, bank regulators could require that additional policies and procedures be implemented that may result in additional costs or that may result in the curtailment of commercial real estate and multi-family lending that would adversely affect the Company’s loan originations and profitability.
The Company’s concentrations of loans in certain industries could have adverse effects on credit quality. As of December 31, 2025, the Company’s commercial real estate - investor loan portfolio included loans to: (i) lessors of office buildings of $1.1 billion, or 10% of total loans; and (ii) borrowers in the retail industry of $1.1 billion, or 10% of total loans. A deterioration within these industries, especially those that have been particularly adversely impacted by long-term work-from-home arrangements on the commercial real estate sector, including retail stores, hotels and office buildings, creates greater risk exposure for the Company’s commercial real estate loan portfolio. Should the fundamentals of the commercial real estate market deteriorate, the Company’s financial condition and results of operations could be adversely affected.
Uncertainties associated with increased originations of commercial real estate, construction, multi-family and commercial and industrial loans may result in errors in judging collectability, which may lead to additional provisions for credit losses or charge-offs, which would negatively affect the Company’s operations. The recent and intended increases in the level of commercial lending (including commercial real estate, multi-family real estate and land loans, and commercial and industrial loans) have required and would likely require the Company to lend to borrowers with which the Company has limited or no experience. Recently originated loans are unseasoned and the Company does not have a significant payment history pattern with which to judge future collectability. Further, newly originated loans may not have been subjected to unfavorable economic conditions. As a result, it may be difficult to predict the future performance of newly originated loans. These loans may have
delinquency or charge-off levels above recent historical experience, which could adversely affect the Company’s future performance. Further, these types of loans generally have larger balances and involve a greater risk than one- to four-family residential mortgage loans. Accordingly, if the Company makes any errors in judgment in the collectability of these loans, any resulting charge-offs may be larger on a per loan basis than those incurred historically with the single-family residential mortgage loans.
The Dodd-Frank Act imposes obligations on originators of residential mortgage loans, which if not followed could lead to loan losses, litigation-related expenses, and delays in taking title to real estate collateral in a foreclosure . Among other things, the Dodd-Frank Act requires originators to make a reasonable and good faith determination based on documented information that a borrower has a reasonable ability to repay a particular mortgage loan over the long term. If the originator cannot meet this standard, the burden is on the lender to demonstrate the appropriateness of its policies and the strength of its controls. The Dodd-Frank Act contains an exception from this Ability-To-Repay rule for “Qualified Mortgages.” Applicable rules set forth specific underwriting criteria for a loan to qualify as a Qualified Mortgage. If a loan meets these criteria and is not a “higher priced loan” as defined in FRB regulations, the CFPB rule establishes a safe harbor preventing a consumer from asserting the failure of the originator to establish the consumer’s Ability-To-Repay. However, a consumer may assert the lender’s failure to comply with the Ability-To-Repay rule for all residential mortgage loans other than Qualified Mortgages, and may challenge whether a loan actually met the criteria to be deemed an Ability-to-Pay Qualified Mortgage. These challenges have yet to be addressed by the courts.
Although the majority of residential mortgages historically originated by the Company would be considered Qualified Mortgages, the Company currently originates residential mortgage loans that do not meet the definition. As a result of the Ability-to-Repay rules, the Company may experience loan losses, litigation-related expenses, and delays in taking title to real estate collateral in a foreclosure proceeding if these loans do not perform and borrowers challenge whether the Company satisfied the Ability-To-Repay rule upon originating the loan.
The Company’s allowance for credit losses may be inadequate, which could hurt the Company’s earnings . The Company’s allowance for credit losses may prove to be inadequate to cover actual credit losses. If the Company is required to increase its allowance, current earnings may be reduced. The Company provides for losses by reserving what it believes to be an adequate amount to absorb any estimated lifetime expected credit losses. The Company also makes various assumptions and judgments about the collectability of loans in the portfolio, including the creditworthiness of borrowers, the strength of the economy and the value of the real estate and other assets serving as collateral for the repayment of loans. In determining the adequacy of the allowance for credit losses, the Company relies on its historic loss experience and the evaluation of economic conditions and other qualitative factors. If the assumptions prove to be incorrect and the Company’s allowance was insufficient, it would be required to record a provision, which would reduce earnings for that period. Changes to the economic forecasts within the model could positively or negatively impact the calculation of the allowance. In addition, regulatory agencies, as an integral part of their examination process, may require additions to the allowance based on their judgment about information available to them at the time of their examination. Any increase in the allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, may have a material adverse effect on the Company’s financial condition and results of operations.
The performance of New York City multifamily real estate loans could be adversely impacted by regulation . In 2019, New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (1) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant, (2) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal. This legislation generally limits a landlord’s ability to increase rents on rent-regulated apartments and makes it more difficult to convert rent- regulated apartments to market rate apartments. For example, the New York City Rent Guidelines Board established that on certain apartments, for a one-year lease beginning on or after September 30, 2024, the maximum rent increase is 3.0%, even though the overall inflation rate increased at a higher rate. Further restrictions on rent-regulated properties may be enacted or existing restrictions strengthened as a result of the results of the recent New York City mayoral election. As a result, the value of the collateral located in New York securing multifamily loans or the future net operating income of such properties could potentially become impaired. At December 31, 2025, the total multifamily rent regulated exposure in New York was approximately $28 million, or 0.19%, of the Company’s total assets.
The foreclosure process m ay adversely impact the Company’s recoveries on non-performing loans . The judicial foreclosure process is protracted, especially in New Jersey, where foreclosure timelines remain among the longest in the nation, which delays the Company ’s ability to resolve non-performing loans through the sale of the underlying collateral. The longer timelines
have been the result of the economic environment, additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and, both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure. These reasons and the legal and regulatory responses have impacted the foreclosure process and completion time of foreclosures f or residential mortgage lenders. This may result in a material adverse effect on collateral values and the Company’s ability to minimize its losses.
Risks Related to Economic Matters
Inflation can have an adverse impact on the Company ’s business and its customers. Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. In addition, inflation generally increases the cost of goods and services the Company uses in its business operations, such as electricity and other utilities, and also generally increases employee wages, any of which can increase the Company’s non-interest expenses. Furthermore, the Company’s customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with the Company.
A worsening of economic conditions in the Company ’s market areas could reduce demand for the products and services and/or result in increases in the level of non-performing loans, which could adversely affect the Company’s business, financial condition, and results of operations. A deterioration in economic conditions, especially local conditions, continued inflation, tariff wars, increased unemployment, recession or otherwise, could have the following consequences, any of which could have a material adverse effect on the business, financial condition, liquidity and results of operations, and could more negatively affect the Company:
• demand for the products and services may decline;
• the allowance for credit losses may increase;
• loan delinquencies, problem assets, and foreclosures may increase;
• Low cost or non-interest-bearing deposits may decrease;
• Inflation may accelerate, which may increase operating costs and also may increase real estate costs and lower customer buying power, thereby reducing loan demand;
• The value of securities portfolio may decrease;
• collateral for loans, especially real estate, may decline in value, thereby reducing customers’ borrowing power, and reducing the value of assets and collateral associated with existing loans; and
• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments.
Moreover, a significant decline in general economic conditions caused by inflation, tariffs, recession, acts of terrorism, civil unrest, an outbreak of hostilities or other internati onal or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond the Company’s control could further impact these local economic conditions and could further negatively affect the financial results of banking operations. In addition, deflationary pressures, while possibly lowering operating costs, could have a significant negative effect on borrowers, especially business borrowers, and the values of underlying collateral securing loans, which could negatively affect financial performance.
A downturn in economic conditions or in real estate values in the Bank’s market areas could adversely impact profits . Most of the Bank ’s loans are s ecured by real estate and are made to borrowers throughout New Jersey and the major metropolitan areas from Massachusetts through Virginia. A return of recessionary conditions and/or negative developments in the domestic and interna tional credit markets may significantly affect the markets in which the Company does its business, the value of loans, investments, and collateral securing loans and classified assets, reduce the demand for the Company’s products and services, and/or the adversely impact ongoing operations, costs and profitability. Any of these negative events could increase the amount of non-performing loans and cause residential and commercial real estate loans to become inadequately collateralized, any of which could expose the Company to a greater risk of loss and may adversely affect the Company’s capital, liquidity and financial conditions.
The failure to address the federal debt ceiling in a timely manner, downgrades of the U.S. credit rating and uncertain credit and financial market conditions may affect the stability of securities issued or guaranteed by the federal government, which may affect the valuation or liquidity of the investment securities portfolio and increase future borrowing costs . As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Given that future deterioration in the U.S. credit and financial markets is a possibility, losses or significant deterioration in the fair value of the U.S. government issued or guaranteed investments may occur. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of the portfolio of such investment securities, and could result in the Company’s counterparties requiring additional collateral for borrowings.
Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase the Company’s future borrowing costs.
Another prolonged U.S. government shutdown or a default by the U.S. on government obligations could harm the Company’s results of operations . The Company’s results of operations, including revenue, non-interest income, expenses and net interest income, would be adversely affected in the event of widespread financial and business disruption on account of a default by the United States on U.S. government obligations or a prolonged failure to maintain significant U.S. government operations.
Significant changes to the size, structure, powers and operations of the federal government, changes to U.S. economic policies, and uncertainties regarding the potential for these changes may cause economic disruptions that could, in turn, adversely impact the Company’s business, results of operations and financial condition . The current U.S. administration has implemented significant changes in federal priorities and has taken steps to change the operations, structure, and policy focus of various federal agencies, as well as regulatory priorities, policy approaches and interpretations of existing laws by those federal agencies. For example, recent executive actions and proposed legislation has changed agency mandates, modified or reduced federal program funding, altered regulatory frameworks, or adjusted the size and composition of the federal workforce. Moreover, leadership transitions at key federal agencies have impacted or may impact rulemaking, supervision, enforcement, and examination priorities across the financial regulatory landscape. These developments in the federal government may have varying effects on the banking and financial services industry that are difficult to predict, which makes it difficult for the Company to anticipate and mitigate attendant risks. Compliance with changing federal and regulatory priorities could, among other things, increase the costs of operating business, reduce the demand for products and services, impact the Company’s ability to achieve business goals, and increase legal, operational and reputational risks, any or all of which could materially adversely affect the Company’s results of operations.
The current U.S. administration also has implemented rapid shifts in macroeconomic policies, such as those relating to trade restrictions and tariffs, which have created significant uncertainties regarding U.S. economic growth, the potential for recession, and concerns over an increase in inflation. Slow economic growth, economic contraction or recession, or shifts in broader consumer and business trends would significantly impact the Company’s ability to originate loans, the ability of borrowers to repay loans, and the value of the collateral securing loans.
Other political and economic events within the United States, including a contentious domestic political environment, changes in or disagreements over U.S. monetary policy and actions of the Federal Reserve System, disagreements over long-term federal budget and deficit reduction plans, disagreements over, or threats not to increase, the U.S. government’s borrowing limit (or “debt ceiling”), and risk of further downgrade of the ratings of U.S. government debt obligations, also may negatively impact financial markets and the U.S. economy.
Further, the perception of the potential for additional, significant changes in federal regulatory or economic policy also has increased uncertainty and may exacerbate declines in investor and consumer confidence, which in turn may adversely impact financial markets and the broader economy of the U.S.
Regional business and economic conditions are a major driver of the Company’s results of operations. Difficult conditions in the regional business and economic environment, including those caused by the lack of stability and predictability of U.S. policymaking, may materially adversely affect the Company’s operating expenses, the quality of its assets, credit losses, and the demand for its products and services.
Risks Related to Interest Rates
Changes in interest rates could adversely affect results of operations and financial condition . The Company’s ability to make a profit largely depends on net interest income, which could be negatively affected by changes in interest rates. The Company’s interest-bearing liabilities generally have shorter contractual maturities than its interest-earning assets. Furthermore, the rates earned on other interest-earning assets and the rates paid on interest-bearing liabilities are generally fixed for a contractual period of time. This imbalance can create significant earnings volatility as market interest rates change over time. Generally, in a period of declining interest rates, the interest income the Company earns on its interest-earning assets may decrease more rapidly than the interest it pays on interest-bearing liabilities. Conversely, in a period of rising interest rates, the interest income earned on interest-earning assets may not increase as rapidly as the interest paid on interest-bearing liabilities, which would be expected to compress the interest rate spread and have a negative effect on the Company’s profitability. Additionally, a flat or an inverted yield curve, where short-term rates are close to, or above, long-term rates, could adversely affect the Company’s financial condition and results of operations.
In addition, changes in interest rates can affect the average life of loans and investment securities. A reduction in interest rates causes increased prepayments of loans and mortgage-backed securities as borrowers refinance their debt to reduce their
borrowing costs. This creates reinvestment risk, which is the risk that the Company may not be able to reinvest the funds from faster prepayments at rates that are comparable to the rates earned on the prepaid loans or securities. Conversely, an increase in interest rates generally reduces prepayments. Additionally, increases in interest rates may decrease loan demand and/or make it more difficult for borrowers to repay adjustable-rate loans.
Changes in interest rates may also affect the current estimated fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. Unrealized net losses on securities available-for-sale are reported as a separate component of stockholders’ equity. To the extent interest rates increase and the value of the available-for-sale portfolio decreases, stockholders’ equity will be adversely affected.
Changes in the estimated fair value of debt securities may reduce stockholders’ equity and net income . At December 31, 2025, the Company maintained a debt securities portfolio of $2.11 billion, of which $1.23 billion was classified as available-for-sale. The estimated fair value of the available-for-sale debt securities portfolio may change depending on the credit quality of the underlying issuer, market liquidity, changes in interest rates and other factors. Stockholders’ equity increases or decreases by the amount of the change in the unrealized gain or loss (difference between the estimated fair value and the amortized cost) of the available-for-sale debt securities portfolio, net of the related tax expense or benefit, under the category of accumulated other comprehensive income (loss). During the year ended December 31, 2025, the Company incurred other comprehensive gains of $13.3 million, net of tax, related to net changes in unrealized holding gains in the available-for-sale investment securities portfolio, which positively impacted stockholders’ equity, as well as book value per common share. The increase occurred even though the securities are not sold.
The Company conducts a periodic review of the debt securities portfolio to determine if any decline in the estimated fair value of any security below its cost basis is considered impaired. Factors which are considered in the analysis include, but are not limited to, the extent to which the fair value is less than the amortized cost basis, the financial condition, credit rating and future prospects of the issuer, whether the debtor is current on contractually obligated interest and principal payments and the Company’s intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value and the likelihood of any near-term fair value recovery. If such decline is deemed to be uncollectible, the security is written down to a new cost basis and the resulting loss will be recognized as a securities provision for credit losses through an allowance for securities credit losses.
Hedging against interest rate exposure may adversely affect the Company’s earnings . On occasion the Company has employed various financial risk methodologies that limit, or “hedge,” the adverse effects of rising or decreasing interest rates on the loan portfolios and short-term liabilities. The Company also engages in hedging strategies with respect to arrangements where customers swap floating-rate obligations for fixed-rate obligations, or vice versa. The hedging activity varies based on the level and volatility of interest rates and other changing market conditions. Interest rate hedging may fail to protect the Company from loss. Moreover, hedging activities could result in losses if the event against which the Company hedges does not occur. Additionally, interest rate hedging could fail to protect the Company or adversely affect the Company because, among other things:
• available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought;
• the duration of the hedge may not match the duration of the related liability;
• the party owing money in the hedging transaction may default on its obligation to pay;
• the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs the ability to sell or assign the Company’s side of the hedging transaction;
• the value of derivatives used for hedging may be adjusted from time to time in accordance with accounting rules to reflect changes in fair value; and/or
• downward adjustments, or “mark-to-market” losses, would reduce the Company’s stockholders’ equity.
Risks Related to Acquisitions and Growth
The failure to successfully integrate the operations and retain the customers of its acquired institutions may adversely affect the Company’s results of operations . The Company has historically acquired financial institutions and other service companies and continues to explore acquisition opportunities. Future results of operations will depend in large part on the Company’s ability to successfully integrate the operations of the institutions it acquires, retain the employees and customers of those institutions and achieve the level of expected cost savings and revenue growth. If the Company is unable to successfully manage the integration of the separate cultures, employee and customer bases and operating systems of the institutions it acquires, the Company’s results of operations may be adversely affected.
The Company’s failure to successfully manage its growth may adversely impact its financial condition and results of operation. The Company may not successfully manage its business as a result of the strain on management and operations that may result from growth. Success will also depend on the ability of officers and key employees to continue to implement and improve
operational and other systems, to manage multiple, concurrent customer relationships and to retain, hire, train and manage skilled employees and to build market share in its existing and new market areas.
In order to successfully manage substantial growth, the Company may need to increase non-interest expenses through additional hires, additional leasehold and data processing costs, and other infrastructure costs. In order to successfully manage growth, the Company may need to adopt and effectively implement new or revise existing policies, procedures and controls to maintain credit quality, control costs and oversee the Company’s operations. No assurance can be given that the Company will be successful in these efforts.
The Company may not be successful in entering into new markets . The Company intends to expand its geographic footprint through acquisitions and organic growth. Entering into new markets involves risks, such as competitive disadvantages through a lack of name recognition, increased marketing costs, and the inability to otherwise grow market share as needed to offset the costs associated with expansion. The failure to successfully expand the Company’s footprint or do so in an effective manner could adversely affect the Company’s results of operations.
The Company may need to raise additional capital in the future and such capital may not be available when needed or at terms that are beneficial to stockholders. Substantial growth may stress regulatory capital levels, and may require the Company to raise additional capital. No assurance can be given that the Company will be able to raise any required capital, or that it will be able to raise capital on terms that are beneficial to stockholders.
A portion of the Company’s loan portfolio has grown through acquisition, and therefore may not have been underwritten to meet the Company’s credit standards . Loans that were acquired as part of the Company’s acquisitions of other depository institutions were not initially underwritten or originated in accordance with the Company’s credit standards, and the Company did not have long-standing relationships with many of these borrowers at the time of acquisition. The acquired loans were underwritten at the date of acquisition based on the Company’s credit standards, which can temporarily increase loans classified as special mention and substandard for a period of time until these loans are integrated and conform to the Company’s credit standards. Although the Company reviewed the loan portfolios of each institution acquired as part of the diligence process, and believes that it has established reasonable credit marks with regard to all loans acquired, no assurance can be given that the Company will not incur losses in excess of the credit marks with regard to these acquired loans, or that any such losses, if they occur, will not have a material adverse effect on the Company’s business, financial condition, and results of operations.
Future acquisition activity could otherwise negatively affect financial condition and results of operations . The Company continues to evaluate opportunities to acquire financial institutions, financial service companies and/or bank branches. Acquiring other banks, businesses, or branches may have an adverse effect on financial results and may involve various other risks commonly associated with acquisitions, including those discussed above, as well as, among other things:
• payment of a premium over book and/or market values of the target company may dilute the book value and earnings per share of the Company in the short and long-term;
• potential exposure to unknown or contingent liabilities of the target company;
• exposure to potential asset quality problems of the target company;
• inability to realize the expected revenue increases, cost savings, increases in market share, and/or other projected benefits of the acquisition;
• potential disruption to the business;
• potential diversion of management’s time and attention;
• the possible loss of key employees and customers of the target company; and/or
• potential changes in banking or tax laws or regulations that may affect the target company.
Acquisitions may reduce or not enhance cash flows, business, financial condition, results of operations or prospects and, as a result, such acquisitions may have an adverse effect on the results of operations, particularly during periods in which the acquisitions are being integrated into operations.
Risks Related to Loan Sales
The Company may be required to repurchase loans that had previously been sold for a breach of representations and warranties, which could harm the Company’s earnings . The Company enters into loan sale agreements with investors in the normal course of business. The loan sale agreements generally require the repurchase of certain loans previously sold in the event of a violation of various representations and warranties custom ary in the banking industry. Investors carefully examine loan documentation on delinquent loans for a possible reason to request a repurchase by the loan originator. A subsequent sale of a repurchased loan could be at a significant discount to the unpaid principal balance. The Company maintains a reserve for repurchased loans. However, if repurchase activity or the amount of loss on the sale of a repurchased loan is greater than anticipated, the reserve may need to be increased to cover actual losses, which could harm earnings.
Risks Related to Laws and Regulations
The Company and the Bank operate in a highly regu lated environment and may be adversely affected by changes in laws and regulations . The Company is subject to examination, supervision and regulation by the FRB. The Bank is subject to regulation, supervision and examination by the OCC, its primary federal regulator, by the FDIC, as insurer of deposits, and by the CFPB with respect to consumer protection laws. Such regulation and supervision governs the activities in which an institution and its holding company may engage. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose of restrictions on operations, the classification of assets and determination of the level of the allowance for credit losses. The laws and regulations that govern the Company’s and the Bank’s operations are designed for the protection of depositors and the public, not the Company’s stockholders. These provisions, as well as future regulatory or legislative changes or executive orders applicable to the financial industry, may impact the profitability of the Company’s business activities and may change certain business practices, including the ability to offer new products, obtain financing, generate fee income, attract deposits, make loans and achieve satisfactory interest spreads, and could expose the Company to additional costs, including increased compliance and disclosure costs. Such changes also may require the Company to invest significant management attention and resources to make any necessary changes to operations in order to comply, and could therefore also materially and adversely affect the Company’s business, financial condition, and results of operations.
As part of its lending activity, the Company may enter into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan to a fixed-rate commercial loan. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable rate loan into a fixed rate loan. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement, as well as more broadly to hedge variable cash flows associated with its variable-rate loans. Offering these products can subject the Company to additional regulatory oversight and cost, as well as additional risk. The Dodd-Frank Act contains a comprehensive framework for over-the-counter derivative transactions. Even though many of the requirements do not impact the Company directly, since the Bank does not meet the definition of swap dealer or “major swap participant,” the Company continues to review and evaluate the extent to which such requirements impact its business indirectly or if and when such requirements may apply to the Bank directly.
The USA Patriot and Bank Secrecy Acts require financial institutions to develop programs and procedures to prevent financial institutions from being used for money laundering, terrorist financing and other illicit activities, including filing suspicious activity reports and establishing procedures for identifying and verifying the identity of customers seeking to open new accounts. Failure to comply with these regulations could result in sanctions, including payment of damages and civil money penalties, injunctive relief, and restrictions on mergers and acquisitions activity and other expansionary activities. Although the Company has developed policies and procedures designated to comply with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.
The Company is subject to stringent capital requirements, which may adversely impact return on equity, require additional capital raises, or limit the ability to pay dividends or repurchase shares . Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios. The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The regulations also establish a “capital conservation buffer” of 2.5%, which if complied with, will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the capital conservation buffer amount.
The application of these capital requirements could, among other things, require the Company to maintain higher capital resulting in lower returns on equity, and could require the Company to obtain additional capital to comply or result in regulatory actions if the Company is unable to comply with such requirements. See Regulation and Supervision, Bank Holding Company Regulation .
Monetary policies and regulations of the federal government, including the Federal Reserve Board, could adversely affect the Company’s business, financial condition, and results of operations . The Company’s earnings and growth are affected by the policies of the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve Board to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against certain transaction account deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. The Federal Reserve Board’s policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect
net interest margin. Its policies can also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans. The monetary policies and regulations of the Federal Reserve Board have a significant effect on the overall economy and the operating results of financial institutions.
Additionally, Congress and the administration through executive orders, control fiscal policy through decisions on taxation and expenditures. Depending on industries and markets involved, changes to tax law and increased or reduced public expenditures could affect the Company directly or the business operations of its customers.
Changes in Federal Reserve Board and other governmental policies, fiscal policy, and regulatory environment generally are beyond the Company’s control, and are unable to predict what changes may occur or the manner in which any future changes may affect the Company’s business, financial condition and results of operations.
The Company is subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties . The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in sanctions, including payment of damages and civil money penalties, injunctive relief, and restrictions on mergers and acquisitions activity and expansionary activities. Private parties may also challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on the Company’s business, financial condition, and results of operations.
The Federal Reserve Board may require the Company to commit capital resources to support the Bank . Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the Federal Reserve Board may require a holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it and therefore may require the holding company to borrow the funds or raise capital. Under such a scenario, any borrowing or funds needed to raise capital required to make a capital injection may be more difficult and expensive and could have an adverse effect on the Company’s business, financial condition, and results of operations.
The Company is subject to heightened regulatory requirements as a result of assets exceeding $10 billion . The Company’s total assets were $14.6 billion at December 31, 2025, thereby making it subject to requirements imposed by the Dodd-Frank Act and its implementing regulations, including examination by the CFPB to assess compliance with federal consumer financial laws, imposition of higher FDIC premiums, reduced debit card interchange fees, and enhanced risk management frameworks, all of which increase operating costs and reduce earnings.
Additional costs have been and will be incurred to implement processes, procedures, and monitoring of compliance with these requirements, including investing significant management attention.
Furthermore, the level of dividends the Company receives from the Federal Reserve Bank of Philadelphia is reduced due to its asset size.
The Company may become subject to enforcement actions even though non-compliance was inadvertent or unintentional. The financial services industry is subject to intense scrutiny from bank supervisors in the examination process and aggressive enforcement of federal and state regulations, particularly with respect to mortgage-related practices and other consumer compliance matters, and compliance with anti-money laundering, Bank Secrecy Act and Office of Foreign Assets Control regulations, and economic sanctions against certain foreign countries and nationals. Enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. The Company maintains systems and procedures designed to ensure that the Company complies with applicable laws and regulations; however, some legal/regulatory frameworks provide for the imposition of fines or penalties for non-compliance even though the non-compliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. Failure to comply with these and other regulations, and supervisory expectations related thereto, may result in fines, penalties, lawsuits, regulatory sanctions, reputation damage, or restrictions on the business.
The grant of bank charters and special purpose fintech charters by the OCC to fintech companies could present financial risk and market risk to the Company generally and the payments processing business specifically . In 2018, the OCC announced that it would begin to accept and evaluate charters for entities that wanted to conduct certain components of a banking business pursuant to a federal charter, known as a special purpose national bank charter. Intended to promote economic opportunity and spur financial innovation, an institution with a special purpose national bank charter may engage in paying checks, lending
money and taking deposits. The OCC has granted national bank charters to companies that were previously non-bank fintech companies. If, in the future, the OCC determines to grant any special purpose national bank charter applications or continues to grant bank charters to fintech applicants, recipients of such charters may enter the U.S. payments market and other business activities that the Company conducts, which could increase the competition it faces and have a material adverse effect on the Company. This could result in lower fee income, and loss of deposits, related to the Company’s payments processing business.
Risks Related to Dividend Payments
There is no guaranty that the Company will be able to continue to pay a dividend on its common stock or, if continued, will be able to pay a dividend at the current rate . The Board of the Company determines if, when and the amount of dividends that may be paid on the common stock. In making such determination under the Company’s capital management plan, the Board takes into account various factors including economic conditions, earnings, alternative uses of the Company’s capital, liquidity needs, the financial condition of the Company, applicable state law, tax and regulatory requirements and other factors deemed relevant by the Board. Although the Company has a long history of paying a quarterly dividend on its common stock, there is no guaranty that such dividends will continue to be paid in the future or at what rate.
Risks Related to Competition
Competition may adversely affect profitability and liquidity . The Company experiences substantial competition in originating loans in its market areas. This competition comes principally from other banks, savings institutions, mortgage bankin g companies, credit unions and other lenders. Many of these competitors enjoy advantages not available to the Company, including greater financial resources and access to capital, stronger regulatory ratios and higher lending limits, a wider geographic presence, more accessible branch office locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination and operating costs. Increased competition could reduce the Company’s net income by decreasing the number and size of loans that the Company originates and the interest rates charged on these loans. Competitive factors driven by consumer sentiment, regulatory directives or otherwise can also reduce the Company’s ability to generate fee income, such as through overdraft fees.
In attracting deposits, the Company faces substantial competition from other insured depository institutions such as banks, savings institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market funds. Many competitors enjoy advantages not available to the Company, including greater financial resources and access to capital, stronger regulatory ratios, more aggressive marketing campaigns, better brand recognition and more branch locations. These competitors may offer higher interest rates than the Company, which could decrease the deposits that the Company attracts or require the Company to increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect the Company’s ability to generate the funds necessary for lending operations. As a result, the Company may need to seek other sources of funds that may be more expensive to obtain, which could increase the cost of funds.
In addition, rapid technological changes and consumer preferences may result in increased competition for the Company’s other services. A number of well-funded technology focused companies are innovating the payments, distributed ledger, and cryptocurrency networks and are attempting to disintermediate portions of the traditional banking model. A shift in the mix of payment forms away from the Company’s products and services could have a material adverse effect on the Company’s financial position and results of operations.
The Company has also been active in competing for New Jersey governmental and municipal deposits including public school districts, local municipal governments, and cooperative health insurance funds. At December 31, 2025 such deposits accounted for approximately 25% of the Company’s total deposits. Public fund deposits from local government entities such as counties, townships, school districts and other municipalities generally have highe r average balances and the Company ’s inability to retain such funds could adversely affect liquidity or result in the use of higher-cost funding sources.
Risks Related to Strategic Matters
New lines of business or new products and services may subject the Company to additional risks . The Company may implement new lines of business or offer new products and services within existing lines of business. Significant time and resources may be invested in developing and marketing new lines of business and/or new products and services. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. Furthermore, customers may fail to accept the new products and services. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and information technology of introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks
in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, financial condition, and results of operations.
The Company’s inability to tailor its retail delivery model to respond to consumer preferences may negatively affect earnings . The Company has expanded its market presence through acquisitions and growth. The Company’s branch network continues to be a very significant source of new business generation, however, consumers continue to migrate much of their routine banking to self-service channels. In recognition of this shift in consumer patterns, the Company has undertaken a comprehensive review of its branch network, resulting in branch consolidation accompanied by the enhancement of the Company’s capabilities to serve its customers through alternate delivery channels. The benefits of this strategy are dependent on the Company’s ability to realize expected expense reductions without experiencing significant customer attrition.
Risks Related to Operational Matters
Risks associated with system failures, interruptions, or breaches of security could disrupt businesses, result in the disclosure of confidential information, damage the reputation of, and create significant financial and legal exposure . Information technology systems are critical to the Company ’s business, which includes collecting, processing, transmitting,, and storing significant amounts of confidential information regarding the Company ’s customers, employees and its business, operations, plans, and business strategies. The Company uses various technology systems to manage customer relationships, deposits and loans, general ledger, securities investments, and other processes. These computer systems, data management, and internal processes, as well as those of third parties, are integral to the Company ’s performance. The heavy reliance on information technology systems may expose the Company to operational risks, which include the risk of malfeasance by employees or persons outside the Company , errors relating to transaction processing and technology, systems failures or interruptions, failures to properly implement systems upgrades, cyberattacks, breaches of the Company ’s internal control systems and compliance requirements, and business continuation and disaster recovery.
Financial institutions and companies have reported breaches in the security of their websites or other systems, some of which have involved sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disrupt or degrade se rvice, sabotage systems or cause other damage, often through the introduction of computer viruses or malware, cyberattacks, ransomware and other means. The proliferation of artificial intelligence has enhanced actions, strategies, and processes that cyber attackers use to create threats and launch cyberattacks. Additionally, there is the risk of distributed denial-of-service or other similar attacks, which are intended to disrupt online services. Despite the Company ’s efforts to ensure the integrity of its systems, the Company may not be able to implement effective preventive measures against all attempted security breaches, especially because the techniques used change frequently or are deceptive in nature, and because cyberattacks can originate from a wide variety of sources. Those parties may also attempt to fraudulently induce employees, customers or other users of the Company’s systems to disclose sensitive information in order to gain access to the Company’s data or that of its customers or clients. These risks may increase in the future as the Company continues to increase its mobile and other internet-based product offerings and systems.
In addition, a majority of data processing is outsourced to third-party providers. If these third-party providers encounter difficulties, or if there is difficulty communicating with them, the ability to adequately process and account for transactions could be affected, and business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various vendors and their personnel. Breaches of security may occur through intentional or unintentional acts by those having access to the confidential or other information of the Company and its customers, clients or counterparties. While management regularly reviews security assessments that were conducted on the Company’s third-party service providers that have access to sensitive and confidential information, there can be no assurance that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
The occurrence of any system failures, interruption, or breach of security of the Company’s or its vendors’ systems could cause negative consequences for the Company, including significant disruption of the Company’s operations, misappropriation of confidential information of the Company or that of its customers, or damage to computers or systems of the Company and those of its customers and counterparties, which could result in violations of applicable privacy and other laws, financial loss to the Company or to its customers, loss of confidence in the Company’s security measures, customer dissatisfaction, litigation exposure, and harm to the Company’s reputation, all of which could have a material adverse effect on the Company.
The Company’s Board relies on management in overseeing cybersecurity risk management. The Company has an Information Technology and Security Management Committee, consisting of leaders across multiple domains. The Chief Information Security Officer is a primary management liaison to the committee. The committee meets quarterly, or more frequently if needed, and reports to the Board after each meeting through committee minutes. While select Board members of the Company have experience in multiple disciplines including cybersecurity risk management, the Board relies on the Chief Information Security Officer and management for cybersecurity guidance.
An inability to attract and retain qualified personnel or the unexpected loss of service of any key personnel could have a negative impact on financial condition and results of operations. The Company ’s ability to maximize profitability and manage growth successfully depends on its ability to attract and retain management and loan officers experienced in banking and financial services and fami liar with the communities in its market areas. Competition for qualified employees and personnel in the banking industry is intense. The process of recruiting personnel with the combination of skills and attributes required to carry out strategies is often lengthy. The unexpected loss of service of any key management personnel, or the inability to recruit and retain qualified personnel, could adversely affect the Company. If the Company is not able to attract qualified personnel it could negatively impact the Company’s profitability and growth.
The soundness of other financial institutions could adversely affect the Company . The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty and other relationships. The Company has exposure to many different counterparties, and routinely execute transactions with counterparties in the financial industry, including brokers and dealers, other commercial banks, investment banks, mutual and hedge funds, and other financial institutions. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by the Company or by other institutions and organizations. Many of these transactions expose the Company to credit risk in the event of default of the counterparty or client. In addition, credit risk may be exacerbated when the collateral held by the Company cannot be liquidated or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure that is due. Any such losses could materially and adversely affect the Company’s results of operations.
The Company faces funds transfer and payments-related risks . As a financial institution, the Company bears funds transfer risks of different types, which result from large transaction volumes and large dollar amounts of incoming and outgoing money transfers. Loss exposure may result if money is transferred before it is received, or legal rights to reclaim monies transferred are asserted, including payments made to merchants for payment clearing, while customers have statutory periods to reverse their payments. Exposure may also results from payments made prior to receipt of offsetting funds, as accommodations to customers. The Company is subject to unique settlement risks as transfers may be larger than typical financial institutions of the Company’s size. Transfers could also be made in error or as a result of fraud. Additionally, as with other financial institutions, the Company may incur legal liability or reputational risk, if it unknowingly process payments for companies in violation of money laundering laws or other regulations or immoral activities.
Risks Related to Accounting and Internal Controls Matters
The Company may incur impairments to goodwill. At December 31, 2025, the Company had $517.5 million in goodwill, which is evaluated for impairment at least annually. Significant negative industry or economic trends, including declines in the market price of the Company’s stock, reduced estimates of future cash flows or business disruptions could result in impairments to goodwill. The valuation methodology for assessing impairment requires management to make judgments and assumptions based on historical experience and to rely on projections of future operating performance. If the analysis results in impairment to goodwill, an impairment charge to earnings would be recorded in the financial statements during the period in which such impairment is determined to exist. Any such charge could have an adverse effect on the results of operations.
Controls and procedures may fail or be circumvented, which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact the Company’s stock price . Management routinely reviews and updates internal controls. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company, the results of operations and financial condition, investor confidence, and stock price.
Changes in management’s estimates and assumptions may have a material impact on the Company’s consolidated financial statements and the financial condition or operating results . In preparing periodic reports the Company is required to file under the Securities Exchange Act of 1934, including the consolidated financial statements, management is required to make estimates and assumptions as of a specified date. These estimates and assumptions are based on management’s best estimates and experience as of that date and are subject to change. Materially different results may occur as circumstances change and additional information becomes known, including the evaluation of the adequacy of the allowance for credit losses.
Changes in accounting standards could affect reported earnings . The bodies responsible for establishing accounting standards, including the FASB, the SEC and other regulatory bodies, periodically change the financial accounting and reporting guidance that governs the preparation of the Company’s financial statements. These changes can be hard to predict, may involve judgment and discretion in their interpretation and implementation by the Company and its independent accounting firm and, as
a result, can materially impact how the financial condition and results of operations are reported. In some cases, the Company could be required to apply new or revised guidance retroactively.
Risks Related to Environmental and Other Global Matters
Hurricanes and other natural disasters, climate change or increases to flood insurance premiums could adversely affect asset quality and earnings . The Company’s market areas include counties in New Jersey with extensive coastal regions. These areas may be vulnerable to flooding or other damage from storms or hurricanes, which could negatively impact the Company’s results of operations by disrupting operations, adversely impacting the ability of the Company’s borrowers to repay their loans, damaging collateral or reducing the value of real estate used as collateral.
The Company’s business, financial condition, and results of operations could be adversely affected by natural disasters, health epidemics, and other catastrophic events. The Company could be adversely affected if key personnel or a significant number of employees were to become unavailable due to a pandemic, natural disaster, war, act of terrorism, accident, or other reason. Any of these events could result in the temporary reduction of operations, employees, and customers, which could limit the Company’s ability to provide services. Additionally, many of the Company’s borrowers may suffer property damage, experience interruptions of their business or lose their jobs after such events. Those borrowers might not be able to repay their loans, and the collateral for such loans may decline significantly in value.
Further, given the inter-connectivity of the global economy, pandemic disease and health events have the potential to negatively impact economic activities in many countries, including the United States, including the business of the Company’s borrowers. Additionally, global markets may be adversely affected by the emergence of widespread health emergencies or pandemics.
Societal responses to climate change could adversely affect the Company’s business and performance, including indirectly through impacts on its customers. Concerns over the long-term impacts of climate change have led and will continue to lead to governmental efforts around the world to mitigate those impacts. Consumers and businesses also may change their behavior as a result of these concerns. The Company and its customers will need to respond to new laws and regulations as well as consumer and business preferences resulting from climate change concerns. The Company and its customers may face cost increases, asset value reductions, operating process changes, and other issues. The impact on the Company’s customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts could be a drop in demand for the Company’s products and services, particularly in certain sectors. In addition, the Company could face reductions in creditworthiness on the part of some customers or in the value of assets securing loans. The Company takes these risks into account when making lending and other decisions, such as business with climate-friendly companies, which may not be effective in protecting from the negative impact of new laws and regulations or changes in consumer or business behavior.
Risks Related to Card Networks
Changes in card network fees could impact the Company’s operations . From time to time, the card networks increase the fees (known as interchange fees) that they charge to acquirers and that the Company charges its merchants. It is possible that competitive pressures will result in the Company absorbing a portion of such increases in the future, which would increase costs, reduce profit margin and adversely affect the Company’s business and financial condition. In addition, the card networks require certain capital requirements. An increase in the required capital levels would further limit the Company’s use of capital for other purposes.
Changes in card network rules or standards could adversely affect the Company’s business . The Company is a member of the Visa and MasterCard networks. As such, the Company is subject to card network rules resulting in a variety of fines or penalties that may be assessed on the Company. The termination of membership or any changes in card network rules or standards, including interpretation and implementation of existing rules or standards, could increase the cost of operating the merchant services business or limit the ability to provide debit card and cash management solutions to or through customers, and could have a material adverse effect on the Company’s business, financial condition, and results of operations.
The potential for fraud in the card payment industry is significant and could adversely affect the Company’s business and results of operations. Issuers of prepaid and debit cards and other companies have suffered significant losses in recent years with respect to the theft of cardholder data that has been illegally exploited for personal gain. The theft of such information is regularly reported and affects individuals and businesses. Losses from various types of fraud have been substantial for certain card industry participants. The Company also relies upon third parties for transaction processing services, which subjects the Company and its customers to risks related to the vulnerabilities of those third parties. The Company, in many cases, have indemnification agreements with third parties; however, these agreements may not fully cover losses. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect the
Company’s business, results of operations and financial condition. Although fraud has not had a material impact on the Company’s profitability, it is possible that such activity could adversely impact profitability in the future.
Other Risks Related to the Business
The Company’s stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions. Further, if the Company is unable to adequately manage liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on the Company’s financial condition and results of operations. Events such as the bank failures that occurred in early 2023 have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of its deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management. If the Company is unable to adequately manage liquidity, deposits, capital levels and interest rate risk, it may have a material adverse effect on its financial condition and results of operations.
The Company is a community bank and its ability to maintain its reputation is critical to the success of the business. The failure to do so may materially adversely affect the Company’s performance. The Company is a community bank, and its reputation is one of the most valuable components of its business. A key component of the Company’s business strategy is to rely on its reputation for customer service and knowledge of local markets to expand its presence by capturing new business opportunities from existing and prospective customers in the Company’s market areas and contiguous areas. Threats to the Company’s reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity incidents, errors resulting from the use of artificial intelligence and questionable or fraudulent activities of the Company’s customers. In addition, third parties with whom the Company has relationships may take actions over which the Company has limited control that could negatively impact perceptions about the Company or the financial services industry. The proliferation of social media may increase the likelihood that negative information about the Company, whether or not accurate, could impact the Company’s reputation and business. Negative publicity regarding the Company’s business, employees, or customers, with or without merit, may result in the loss of customers and employees, costly litigation and increased governmental regulation, all of which could adversely affect the Company’s business and operating results.
The Company’s funding sources may prove insufficient to replace deposits at maturity and support its future growth. A lack of liquidity could adversely affect the financial condition and results of operations and result in regulatory limits being placed on the Company. The Company maintains sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities. The Company also receives funds from loan repayments, investment maturities and income on other interest-earning assets. While the Company emphasizes the generation of low-cost deposits as a source of funding, there is strong competition for such deposits in the Company’s market area. Additionally, deposit balances can decrease if customers identify alternative investments opportunities. Accordingly, as a part of the Company’s liquidity management, the Company may use a number of funding sources in addition to deposits and repayments and maturities of loans and investments. As the Company continues to grow, it is likely to become more dependent on these sources, which may include FHLB advances, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources.
The Company’s financial flexibility will be severely constrained if it is unable to maintain its access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. Further, if the Company is required to rely more heavily on more expensive funding sources to support liquidity and future growth, the Company’s revenues may not increase proportionately to cover increased costs. In this case, operating margins and profitability would be adversely affected. Alternatively, the Company may need to sell a portion of its investment and/or loan portfolio to raise funds, which, depending upon market conditions, could result in realizing a loss.
Any decline in available funding could adversely impact the Company’s ability to originate loans, invest in securities, pay expenses, or fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on liquidity, business, financial condition and results of operations.
A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.
FEDERAL AND STATE TAXATION
Federal Taxation
General . The Company and the Bank report their income on a calendar year basis using the accrual method of accounting, and are subject to Federal income taxation in the same manner as other corporations with some exceptions, including particularly the Company’s reserve for bad debts. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Company or the Bank. The current applicable statutory tax rate is 21%.
Dividends Received Deduction and Other Matters . The Company may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is generally 50% in the case of dividends received from unaffiliated corporations with which the Company and the Bank will not file a consolidated tax return, except that if the Company or the Bank own more than 20% of the stock of a corporation distributing a dividend then 65% of any dividends received may be deducted.
State and Local Taxation
New Jersey Taxation . The Company files New Jersey income tax returns. For this purpose, taxable income generally means Federal taxable income, excluding some entities not included in the unitary filing and other adjustments (including addition of interest income on state and municipal obligations).
The Company is required to file a New Jersey income tax return. For New Jersey tax purposes, regular corporations are presently taxed at a rate equal to 9% of taxable income. New Jersey currently also imposes a Corporate Transit Fee of 2.5%, which applies to the Company, for corporations with a taxable net income over $10 million effective through December 31, 2028.
For 2019 and prospectively, New Jersey law requires combined filing for members of an affiliated group, but excluded companies that qualify as a New Jersey Investment Company and REIT. F or periods ending on and after July 31, 2023, companies meeting the statutory definition of a “captive” IC and REIT are required to be included in the combined filing. This legislation included an exception if at least 50% of the shares, by vote or value, are owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association (financial institution) with assets of $15 billion or less. As of December 31, 2025 the Company qualified for this exception.
The allocation and apportionment of taxable income to New Jersey may affect the overall tax rate.
New York Taxation . The Company is required to file NYS and NYC tax returns. The NYS and NYC returns require consolidation of all entities and taxable income, consistent with other states, generally means Federal taxable income subject to certain adjustments. For NYS tax purposes, corporations are presently taxed at a rate equal to 7.25% of taxable income, in addition to a temporary Metropolitan Transportation Authority surtax of 30% of the NYS tax rate, which is effective through December 31, 2026, for an overall NYS rate of 9.425%. For NYC tax purposes, the Company is taxed at a rate equal to 8.85%. The allocation and apportionment of taxable income to NYS and NYC may affect the overall tax rate.
Pennsylvania Taxation . The Bank is required to file a Pennsylvania bank shares tax return. The Bank’s net assets, less allowable deductions, are taxed at a rate presently equal to 0.95% of apportioned net assets. The allocation and apportionment to Pennsylvania may affect the overall tax rate.
Other City and State Taxation . The Company or the Bank are required to file other city and state tax returns within its geographical footprint. The allocation and apportionment to these jurisdictions may affect the overall tax rate.
Delaware Taxation . As a Delaware holding company not earning income in Delaware, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.
